FTC:WATCH, Jan. 31, 2005, reprinted with permission.
Antitrust and Social Security Albert A. Foer
As the country ponders Administration proposals to privatize the Social Security system, those who believe in the desirability of a market-based economy should consider that social security, with small letters, and the antitrust enterprise have an interesting relationship.
A society could arguably provide social security without antitrust. That is, the citizenry could be assured that no individual will fall into poverty or be deprived of economic essentials, even though markets play no role in the particular society. I was guaranteed “three hots and a cot” for three years by the U.S. government during the Vietnam era: social security without markets. Soviet Communism also promised security without free markets.
But for how long can you have free markets (protected by antitrust) in a society that does not guarantee its citizens an adequate level of security from the anxiety of job loss and poverty?
The essence of a healthy market economy is its dynamism. Change is encouraged by what Burton Klein used to call “the hidden foot” of competition. Funded by the hope of large reward, competition means winners-- and losers. Competition means innovation—and displacement. Competition means risk-taking—and downsliding. In a democracy, it also means that a substantial majority of society that understands the upside of capitalism is also willing to accept the risks inherent in a system that intentionally and unceasingly promotes change.
Such willingness should not be taken for granted. Human nature may include ambition, greed, and an eagerness for challenge; but human nature also seeks stability, predictability, and only a limited amount of stress. (Medical science tells us that too much stress kills.) When Americans protest against globalization, they are protesting against the downside that free trade necessarily carries for those who will be disadvantaged by change. I believe with most economists that free trade serves the utilitarian goal of the greater good for the greater number. But it can only do this by taking away things of value (like jobs or income) from some smaller number. When surveys indicate that globalization makes people feel insecure about their future, you can understand the psychological engine that feeds protectionist programs.
This is fairly well understood with respect to international trade. What may be under-appreciated is that domestic capitalism itself is free trade within a national boundary. It too works by the competitive process generating change, enticing people with the hope of winning while inevitably creating the anxiety of loss. My point is that markets without the accompaniment of widely-trusted social safety nets are a contradiction over the long term because the level of market-induced anxiety –fear of slipping toward poverty if this happens or that happens—will feed politically powerful protectionist counterstrategies that will take their toll on both domestic and international markets. The choice is clear: social protection or economic protectionism.
In his stunning book Wealth and Democracy, Kevin Phillips, the former Republican strategist, spells out how our policies have made the rich richer and everyone else poorer since the advent of the Reagan Administration. The Clinton Administration accomplished some minor reversals of direction, but eliminated the welfare structure, as we knew it. The current Administration has given massive tax breaks to the wealthy and now wants to make Social Security, world history’s most successful anti-poverty program, into something where private citizens must make investment decisions and risk some part of their retirement money in the market. At the same time that we have moved toward less overall social security, we have dedicated ourselves to the god of laissez faire, making markets more and more free to operate on the basis of uncontrolled competition, which is to say, encouraging the large and powerful to become larger and more powerful.
Markets are not the product of Mother Nature. They are embedded in institutions and are at root political creations. Those who support antitrust believe that markets are useful for organizing most economic functions. They should not fool themselves into believing that antitrust is not connected to positive governmental programs – e.g., subsidizing education, job training, counseling, unemployment insurance, basic medical care, retirement income—that make it possible to live happily within a culture that devotes itself, in Schumpeter’s immortal words, to the generation of “gales of creative destruction.”
We seem to have made the choice to place more stress on the individual by putting the individual ever more at risk within the economic sphere, while reducing the role of the safety net. How much more stress will people accept before they rebel against the very idea of free markets? Protect or protectionism: that is the question.
Bert Foer is President of the American Antitrust Institute, www.antitrustinstitute.org